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Watchdog says Education Dept. stonewalls student loan suit

NEW YORK (AP) — The nation's consumer watchdog agency is accusing the Education Department of impeding a lawsuit that could potentially bring financial relief to millions of student loan borrowers.

The Consumer Financial Protection Bureau is suing Navient Solutions, alleging the nation's largest student loan servicer violated consumer protection laws and in some cases caused students to pay back too much on their student loans. But in court filings, the CFPB says the Education Department is refusing to authorize Navient to turn over documents. Without that authorization the federal government, as well as several state attorneys general suing Navient, could find it difficult to show what type of damage the company's alleged misbehavior caused to borrowers.

Under the Obama Administration, the Education Department and the CFPB agreed to share records and resources in cases of potential violations of student borrowing or consumer protection laws. But after Trump-appointee Betsy DeVos took over, the Education Department rescinded that agreement, calling the CFPB "overreaching and unaccountable" and saying the bureau had no authority to oversee federal student loan servicers.

It appears the Education Department is sticking to that position, even though the CFPB is now also run by a Trump-appointee, Mick Mulvaney. He replaced Democrat Richard Cordray in November.

Caught in the middle of the dispute: a potentially large number of student loan borrowers.

Kristen Donoghue, the CFPB's assistant director for enforcement, sent a letter to DeVos' general counsel on May 30 demanding that the Education Department produce the records they need for their lawsuit. The letter appeared in court records filed with U.S. District Court for the Middle District of Pennsylvania, where the CFPB originally filed its lawsuit.

"These records are necessary for the Bureau's litigation against Navient Solutions so that the Bureau can identify the consumers potentially harmed by the practices described in the Bureau's complaint, and can quantify the amount of harm suffered by the consumers," Donoghue writes.

Navient is using the Department of Education's new interpretation of student loan privacy laws to shield itself from having to disclose records to federal investigators. Until the Education Department gives the OK to the CFPB to obtain the records, Navient's lawyers say the company will not cooperate with federal investigators. The impasse is likely to also impact lawsuits filed by Illinois, California, Pennsylvania and other states if the CFPB is unable to make its case.

The CFPB's letter also shows the bureau, under Mulvaney, is presently moving forward with its lawsuit against Navient. It had been rumored that Mulvaney would eventually drop the Navient case — as he did other cases filed in the waning days of the Obama Administration. A CFPB spokesman declined to comment, citing pending litigation, and declined to say whether Donoghue was acting independently or with the approval of top CFPB officials.

DeVos and the Education Department have faced criticism for appearing to be on the side of student loan servicing companies. The department has also taken the position that any state laws that may be more protective of borrowers should be trumped by federal law. The Department of Education did not respond to repeated requests for comment.

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Ken Sweet covers banks and the Consumer Financial Protection Bureau for The Associated Press. Follow him on Twitter at @kensweet

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